Shanghai once hummed with news about 'can't miss' stocks. So when retail investor Bobby Zhu heard a tip about an impending mega-merger a few years back, he pumped 100,000 yuan into the market and set his sights on an overnight fortune.

'I was quite keen to make a quick margin,' said Zhu, a 27-year-old who works at a shipping company. 'But the so-called insider news turned out to be just a rumour.'

He finally bailed out of the investment after two months and no news, losing at least 20,000 yuan.

With the current bear market showing no signs of letting up, Zhu has given up on get-rich-quick tips altogether and gone back to the basics of stock picking.

Strolling through a busy shopping district on West Nanjing Road one night, he passed by a major department store packed with customers. Convinced there was enough demand to support the business, he then checked up on the company's financials and later added its stock to his portfolio.

'Fundamentals were useless before because the market moved based on a kind of gaming theory decided by lots of investors,' Zhu says. 'Now when I pick up stocks, I will put a very high weighting on their real businesses.'

He no longer banks on quick pay-offs either. In fact, having patience has made this year's swoon in the China market easier to stomach.

'Two years ago I checked stock prices every day and all the financial news made me very sensitive. But people can stand more losses now and not get so anxious about cashing out,' he says.

Zhu is one of the millions of young Chinese who hoped to cash in on the historic run-up in the stock market a few years ago only to get caught out by a prolonged downturn. Now a more mature investment strategy is taking shape across the border in which portfolio safeguards such as risk management and diversification are attracting an interest that they could never muster during the bull market days.

And that may not be just a byproduct of short-term damage control. Fantasies of striking it rich have become a vestige of a different era for many retail investors, who lost money over the past three years.

The roof finally caved in on the Shanghai Composite Index after it zoomed up to a record 6,092 points in October 2007. The benchmark had tripled in value in 11 months to that point only to surrender all of those gains over the ensuing 11 months.

The market bounced back in 2009 amid a series of state-sanctioned stimulus plans but then hit the skids once again. It has been the worst performing major benchmark in the region this year, down 20.9 per cent through September 21.

By contrast, Hong Kong's Hang Seng Index was up 0.6 per cent over that span. The Dow Jones Industrial Average had climbed 3.2 per cent and the FTSE 100 had gained 3 per cent.

Despite the widespread slump, mainland retail investors have still not cashed in their chips. In fact, they have opened 8.9 million new brokerage accounts this year, bringing the total number on the exchanges in Shanghai and Shenzhen up to 146.7 million as of August 27.

Poor market performance has affected investment mentality, however, as investors have been forced to cope with pendulum-like swings of volatility on top of heavy losses. This has pushed short-term punters to the sidelines and forced others to revise their investment time horizons.

William Yu, a 32-year-old area sales supervisor, believes that the worst is over in the market, but he has no intention of dumping all his cash into a few stocks. He sticks to a disciplined monthly investment plan and says he will only make changes to his portfolio every year or two.

'I am not waiting to use the money so I just keep putting it in. It is long-run investing, not gambling.'

On the other hand, Shirley Sun says she typically holds stocks for about a month before selling them. But like Yu she does not speculate on when to buy into the market and instead invests a couple of thousand yuan each month. 'I don't have confidence to invest a big mountain of cash because I don't know where the bottom is,' says Sun, a 31-year-old sales trainer at a major retailer.

Confidence is still shaky across the border as the benchmark index sits near a 1 1/2year low. An ING investor survey showed that sentiment in China in the second quarter dropped the most in the pan-Asia region.

And as investors come to grips with a more gloomy market environment, they have started to consider ways of limiting their losses.

Yu has diversified his portfolio since the downturn, splitting his money between stocks, gold and a savings account.

'After some years I have become more careful,' he says. 'And when the stock market is not so well, I will increase my investments in gold.'

And Sun has added funds to her portfolio because she says it could help offset potential losses in her stock investments.

There was not much room for funds in the market a few years ago when investors were more interested in maximising returns than hedging their bets. But this class of investment has started to find favour as a portfolio stabiliser because of its transparent and diversifying nature.

'Investors have more acceptance about [investing in] funds and more knowledge about funds and are starting to ask questions they have never asked before,' says Richard Mo, head of China QDII Business (Retail) at JPMorgan Asset Management.

Mainland investors are largely restricted to investments within China, but the Qualified Domestic Institutional Investor (QDII) scheme allows them a measured access to offshore markets through funds. JPMorgan Asset Management has led more than 200 client events across the border this year to promote this channel of investment.

Mo says retail investors have shown an unprecedented interest, in part because of their desire for downside protection and low-volatility investments. He and his team made stops this year in first and second-tier mainland cities, including Shanghai, Xian, Chongqing and Dalian.

As much as investment mentality may have changed, however, investors still believe the government holds a powerful role in the market.

'In China, the stock market is not a very pure environment,' Sun says. 'The Chinese government will support the stock market back to a high point, but not in the short term.'

She expects it will take three more years before the market reaches a high point.

Over the past few years, most countries have started to blur the line between state control and private business by implementing far-reaching market-boosting measures. But Beijing has long maintained a tight grip on its market through public ownership of major companies and restrictions on foreign investment.

State policy has played an active role in shaping sentiment, acting as a lever to cool off or heat up trading interest. In one example, the Shanghai Composite Index zoomed up 9.3 per cent on April 24, 2008, after the government reduced a stock-trading tax. In June last year, authorities put the breaks on a strong rally by overturning a freeze on initial public offerings and increasing the supply of shares in the market.

A China Securities Regulatory Commission official, who spoke on condition of anonymity, said the regulator would not step in to bail out the beleaguered market this year because retail investors have become more mature and less speculative.

'Investors started to lodge complaints on the regulator before, pinning hopes on market-boosting measures,' the official said. 'But after a roller-coaster ride since 2007, they seem to have gotten used to the wild run of the indicators.'

But it may be tough to convince investors that Beijing has adopted a more hands-off policy.

Yu expects the market will become more transparent in the future. In the meantime he thinks the government will continue to have a major impact on short-term stock movements, making it hard to forecast which stocks could be winners.

'[The government] has an influence. And so it is a very difficult thing for us to just refer to a company's background and profitability.'

And perhaps in another carry-over from the boom of a few years ago, most investors still have a rosy outlook on the market despite its lengthy downturn.

Sun would settle for a 10 per cent annual return on her portfolio in today's environment. Yu expects 5 to 10 per cent, and Zhu targets an amount between 10 and 15 per cent.

All say they will be content with beating the bank deposit interest rate. But that is only 2.25 per cent annually, so they would actually be exceeding it several-fold.

'It's very hard to control yourself when you hear the market noise,' Zhu says. 'But at least now I will only listen to myself.'

Additional reporting by Daniel Ren

Reality check

The Shanghai Composite Index tripled in value in the 11 months to October 2007

At that point, before losing the gains in the next 11 months, it reached a record: 6,092

It has been the worst performing major benchmark in the region this year, down: 20.9%